EDM
As I recall it, Red Lining legislation did not force banks to make special rates ...... It required that banks make loans at the SAME rates and with the same financial criteria no matter the area of the city .....
Al
Al: I have been getting it off my chest on maybe the wrong Internet site. But I've also been researching some stocks using Yahoo Finance, and I find a surprising number of financial junkies are on my wavelength when it comes to what has happened of late to the stock market equity and credit liquidity. As I have said often above, I am amazed how this plays out. I feel like Rip Van Winkle coming awake in a whole new world that I can't believe exists. I know what it is like to buy with 100% leverage (or more) and with full recourse, but this happy situation usually accrues to those who don't need to borrow in the first place. Prudent lenders do not loan out their capital or depositors money as what are now called NINJA loans (
No
Income,
No
Job or
Assets).
My off-double-gun-topic research has turned up something that should answer your question about the pressure on lenders to make bad loans:
http://finance.yahoo.com/expert/article/yourlife/115773#Actually, the germ of the idea that Mr. Stein speaks of got started as early as the
Community Reinvestment Act of 1977, when I was still doing mortgage lending work. But my end of it was new construction on large scale, not single family, so I just heard the rumors. It has been in the news of late that some of BHO's community activism was directed at litigation with Chicago banks to force lending in south side war zones to promote racial parity of color-coded debt, rather than sound loan portfolios.
But the current debacle traces largely to independent mortgage companies not regulated by CRA of 1977; it was expansion of the concept of adjusting social inequities by lending out money starting on Bill Clinton's watch that Stein speaks of.
What the social engineering did was remove from the lenders the hands-on exercise of good judgment that had prevailed from the beginning of time in banking circles: protect deposits and shareholder's equity. Once the Geni was out of the bottle, every rejected loan applicant had a civil rights lawsuit, some filed by BHO's group in Chicago. But, still, it was not the neighborhood banks that did the deed. Fannie and Freddie had to buy the bank's paper, but these bank-originated loans alone are not so infested with sub-standard loans to require a bailout. The banks may have been over-regulated into making a proportion of bad loans to avoid statistical scrutiny by regulators as to the shade of "color" of their loan portfolios, but this isn't the present problem as I see it.
The culpable banks were investment banks, not your local walk ins. In this context, I recall some problems my now-deceased aunt had as she started to get senile: she had a Merrill Lynch account, and would keep going into the local office to cash checks for spending money. She could not get it though her head that Merrill Lynch was not a bank, even though they gave her convenience checks as part of her Cash Management Account. Now Merrill Lynch has tanked, probably because they were not regulated like a bank. Anyway, read Stein's analysis and tell us what you think... EDM
